Hard Money Loan Bookkeeping for Flips: How to Record Points, Draws, Interest and Payoff

What are the parts of a hard money loan in the books?

Four: points and fees paid at closing, draws that release rehab money in stages, interest that accrues or is paid monthly, and the payoff at sale. Each one hits the books differently.

• Points and fees: paid once, at closing.
• Draws: rehab money the lender releases in stages. Each draw adds to what you owe.
• Interest: charged on the balance owed, paid each month or added up until the payoff.
• The payoff: the loan cleared from the sale proceeds on the closing statement.

The loan itself is a debt from the day it funds. It belongs to one property, so it is recorded on that property and nowhere else.

Project 8, 1500 Sample Pl, Folsom, was bought on Jun 10, 2026 for $440,000. The lender agreed to lend up to $469,000 at 12% a year.

Demo Flips LLC is a sample company.

How are points and lender fees recorded?

They are costs of borrowing, not costs of the property. Recorded separately from the purchase price, they stay visible as the cost of the money, which is what makes a lender comparison possible later.

Points are a percentage of the loan. On Project 8 the lender charged 2 points on the full $469,000, so $9,380 was paid at closing on Jun 10, 2026.

Any other lender fee on the closing papers goes on the same loan costs line for that property, including the lender's title insurance and recording its deed of trust. Those exist only because of the loan. So does an extension fee, if the flip runs past the loan's term and the lender charges one to extend it. It goes on that property's loan costs line in the month it is paid. The sample report shows the points and the lender's title and recording in their own loan costs column, next to the purchase cost and never inside it, and the interest in holding costs. Every one of them counts in the deal's profit.

Whether points are deducted, spread over the loan or added to the property's cost on the tax return is a tax question, and your CPA decides it. The books keep the points on their own line so that choice stays open.

The points first appear on the closing papers at purchase. The guide to purchase closing statement bookkeeping covers every other line on that statement.

How does a draw work, and what does it do to the loan?

You spend on the rehab, submit the work to the lender, and the lender releases money against it. The draw increases the loan balance. It is borrowed money arriving, not income.

The entry has two sides. The draw raises the loan owed on that property. The rehab payment it covers is recorded as rehab cost on the same property.

The loan started at $374,000 funded at closing.

The draw schedule tie-out checks the two sides against each other. The lender released $42,240 on Project 8, and the books show $42,240 of rehab spent, so the two agree. That leaves $52,760 of the $95,000 rehab money still to draw.

The $1,240 plumbing payment on Sep 21, 2026 has no invoice yet. The draw is recorded, and the invoice goes on the owner's list for the month.

What is an interest reserve on a hard money loan, and why is it confusing?

The lender holds back part of the loan to pay your interest as it comes due. It is confusing because the money never reaches your bank, yet the loan balance and the interest cost are both real.

Your bank statement shows nothing, so the bank account alone would leave the interest out of the deal. The lender's statement is the only record of each payment taken from the reserve. We record each one from that statement as interest on the property, and the loan balance in the books follows the same statement.

Demo Flips LLC pays its interest from checking each month, so the demo projects have no interest reserve.

How is interest on a hard money loan recorded?

As a holding cost on that property, in the month it belongs to, whether it was paid from your account or taken from the reserve. A flip's interest is part of what the deal cost.

On Project 8 the lender charges 12% a year on the balance owed each day and bills it at month end. Demo Flips LLC pays each bill from checking.

That $14,422.76 is part of the $17,118 of holding costs on Project 8 in the sample report. Whether interest is deducted or added to the property's cost on the tax return is your CPA's call. The books record it on the property, month by month, either way.

Interest is one of the costs of time while a flip sits. The others, and where each one goes, are in house flip holding costs.

What happens at payoff?

The settlement statement at sale shows the payoff. The entry clears the loan balance and any accrued interest in one go, and the remainder is what the sale actually left you.

Project 1, 1234 Example St, Sacramento, sold on Feb 20, 2026 for $405,000. Its loan funded $242,200 at closing on Oct 8, 2025, and 5 draws added $51,200, so the payoff was $293,400.

The entry takes the Project 1 loan to zero. The February interest is recorded as a Project 1 holding cost, and the rest goes to checking.

The $86,916.06 is cash, not profit. After every cost, including $1,525 of staging, Project 1 made $22,576.

The payoff is one line of the closing statement at sale. How to record the sale of a house flip covers the other lines.

On a property kept as a rental, a new loan pays off the rehab loan instead of a sale. The old loan comes off and the new one goes on, as shown in cash-out refinance bookkeeping.

How do you keep the loan agreeing with the lender's statement?

A roll-forward each month: opening balance, plus draws, plus accrued interest, less payments, equals closing balance. Compare it with the lender's statement. A difference points to a missing draw or an unrecorded fee.

1. 1Start with last month's closing balance.
2. 2Add every draw the lender released this month.
3. 3Add the interest charged this month.
4. 4Take away every payment made to the lender.
5. 5Compare the result with the balance on the lender's statement. If the two differ, find the missing item before the month is closed.

June opens with the $374,000 funded at closing on Jun 10, 2026.

Demo Flips LLC pays its interest each month, so the interest and payment columns cancel. On a loan where the interest is added to the balance, it stays in the closing balance until the payoff.

The September closing balance, $416,240.00, is the loan owed on Project 8 in our real estate bookkeeping report example. Project 8 is still in rehab, so its loan is still open. When it sells, its last row will end at zero, as Project 1's did.

What about private lenders?

Same mechanics, less paperwork. The risk is that terms live in an email rather than a loan agreement, so the register records the rate, the term and what has been paid for each lender.

One register holds every loan, from every lender, one row per loan. For a private loan, the rate, the term and the payments come from the note or the email that set them.

Demo Flips LLC has no private loans, so every row below is a hard money loan. The total owed agrees with the sample report: $1,003,040 on the 3 active projects.

A private lender is owed a report as well as a payment: what they put in, what each deal did and what they got back. We cover that report in partner capital accounts and private lender reporting.

Interest paid is from each loan's closing to Sep 30, 2026.